FINANCIAL LIFE PLANNING

Ross Levin

We ’ ve found that good advice helped our clients keep calm in 2022 .

And by “ it ,” we mean the resolve of our clients . They are behaving differently now . They are less skittish than they were in 2008 . They are more amenable to arguments about long-term investing , and they know the benefits of diversification .

We wondered at first about their stoicism : Were they merely catatonic ? Perhaps they were just distracted by the pandemic and politics . Maybe they were only skittish in 2008 because it was so close to 2000 , when there seemed to be a fresh reason to panic . And by 2022 , perhaps they had built some confidence after 14 years of watching interest rates fall and markets generally rise . Maybe now they know , after many emergencies , that they can indeed weather a storm or two . Whatever the reason , this time something had changed .

And perhaps they ’ ve got stiffer resolve because of the important work we ’ ve been doing to educate , even if it was hard to see in real time — because 2022 allowed us to finally demonstrate the benefits of diversification rather than just talk about it .

Let ’ s look at how it happened .

Good News In 2022

First , investors were rewarded for asset allocation and mean reversion , in spite of lousy markets . Our clients realized that there were other asset classes that could benefit them beyond the S & P 500 and growth investments . They got paid a little for owning value and international . They even got paid for the cash they were holding aside to cover short-term spending .

Second , it ’ s become a lot easier for them to hit their retirement spending targets . Yes , their portfolios declined in value , but prospective returns rose , and bond yields rose a lot . When was the last time that happened ? Clients who had been hoping to spend 4 % or 5 % of their portfolios are now comfortably able to do so . Many financial advisors are using Monte Carlo simulations that anticipated markets like this one , so we ’ ve helped clients understand why they won ’ t be forced to cut back .

Third , some of the heroes of the halcyon days for speculation — people like Sam Bankman-Fried and Cathie Wood — have lost their freedom or their microphones . So advisors don ’ t have to keep looking like idiots for not fully participating in once-soaring investments that don ’ t look so good now .

Now What ? So what do we do now ? There ’ s one critical way that 2022 might indeed resemble the dark side of 2008 : and that ’ s if poorly served clients decide to switch advisors after the dust settles . In times like this , clients need more and better service , something hard to maintain if you ’ re cutting costs . When you ’ re running a business , it ’ s tempting to sacrifice staff to preserve your profits . Don ’ t do it . Instead , up your game . These markets are tremendous business growth opportunities , but only if you stay connected , continue to show your value with comprehensive planning , and think about the next five years rather than the next five months .

You should also engage your clients in conversation about the decisions they made that still feel good , as well as those that trouble them . Clients often feel amplified anguish over their past decisions because of sunk costs or artificial rules they use to punish themselves . They might not know that some bad decisions are reversible .

We had clients buy second homes , seemingly at the top of the market .

22 | FINANCIAL ADVISOR MAGAZINE | MARCH 2023 WWW . FA-MAG . COM